1. Star River Electronics LTD
Advanced Managerial Finance
Spring 2013

2. Your general tasks are:
Review the historical performance of the firm
Forecast financing requirements for the next two years
Exercise the forecasting model to identify key driver assumptions
Estimate Star River’s WACC
Analyze a proposed investment in a packaging machine

3. Specific tasks
Assess the current financial health and recent financial performance of the company (what strengths and weaknesses would you highlight?
Forecast the firm’s financial statements for 2002 and What will be the external financing requirements of the firm in those years? Can the firm repay its loan within a reasonable period? Explain the assumptions in your forecast.

4. Specific tasks
What are the key driver assumptions of the firm’s future financial performance? That is, what aspects of the firm’s activities should Koh focus on especially?
Estimate WACC. What methods did you use to estimate WACC? What are the key assumptions that especially influence WACC?
What are the FCFs of the packaging machine investment? Should Kho approve the investment?

5. WACC WACC = wd (1-T) rd + we re + wp rp rd:
re: Gordon growth model or DGM and CAPM rf
Beta: need to find the asset beta of peer(s) and then relever it at Star River Electronics’ capital structure.

6. WACC
wd and we: You need the market values of debt and equity to estimate the capital structure.
Assume the market value of debt is equal to book value. It’s reasonable assumption since 80% of Star River’s debt carries a floating rate of interest.

7. WACC
wd and we: You need the market values of debt and equity to estimate the capital structure.
Assume the market value of debt is equal to book value. It’s reasonable assumption since 80% of Star River’s debt carries a floating rate of interest.
Stor-Max
Wintronics
Star River
Market value of debt
= Book D/E x Book E x outstanding shares
= 84,
Market value of equity
= book value x M/B of peers Wd We

8. Analysis of the packaging machine investment
WACC
Firm must decide between buying the equipment now or waiting 3 years

9. Ability to repay
Percentage of sales method
Total interest expense: